Spontaneous Order of the Market

According to a 1990 paper by Murray N. Rothbard, published in the Journal of Libertarian Studies, the great Taoist Chuang Tzu (369 B.C- 286 B.C) was the first person to work out the idea of ‘Spontaneous Order’. Chuang Tzu said, “Good order results spontaneously when things are let alone.” The term was later used and developed by Pierre-Joseph Proudhon in the nineteenth century and Friedrich Hayek in the twentieth century.

The concept of ‘spontaneous order’ is very well illustrated by Frederic Bastiat in his book Economic Harmonies where he examines and explains an otherwise ordinary phenomenon, ‘How Paris gets fed?’ Here Bastiat recognizes and explains the economic regularity that daily permits Paris to be fed. The marvel of this simple looking phenomenon is the coordinated activities of countless individuals who are looking for their own interests that cause food to reach to the tables of millions of residents of Paris. It was not the good will of the people of France and the world, that kept Parisians fed.

Similar peaceful activity causes people to enjoy a wide array of goods and services which can never be produced by a single mind, no matter how smart he is. And this almost automatic execution of tasks through the magic wand of free market can be called ‘spontaneous order of the market’.

Another term similar to spontaneous order is ‘extended order’ that was developed by Friedrich Hayek and is central to his thesis in the book, ‘The Fatal Conceit.’ Here Hayek argues that, “our civilization depends, not only for its origin but also for its preservation, on what can be precisely described only as the extended order of human cooperation, an order more commonly, if somewhat misleading, known as Capitalism.”

The impossibility of construction of a rational economic order is best described by Hayek in his famous paper of 1945, ‘The Use of Knowledge in Society’. To quote Hayek, “the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.” In other words, “It is a problem of the utilization of knowledge which is not given to anyone in its totality.” The economic order in a free market capitalist system is not the result of human design, but of human action. In the same paper, Hayek also said that every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active cooperation. This is the knowledge of the particular circumstances of time and place which is used and exploited by entrepreneurs based on their expertise to satisfy the needs of consumers, and in turn satisfy their own through profits made.

This dispersed knowledge is reflected through “unregulated price” in a market economy through the aggregation of information reached by the free use of individual knowledge. And ‘freedom’ is a prerequisite for the spontaneous order to take place. Thus we see that the market order can never be reached by any preconceived design or calculation. Indeed, the human civilization and its growth has been a history of this spontaneous order.